A court in Hangzhou, China has ruled that non-fungible tokens (NFTs) can be considered virtual property and are therefore protected under Chinese law. This decision stems from a dispute between a client and a platform responsible for selling a collection of NFTs.
The court has explained that NFT collections exhibit the characteristics of property rights such as value, scarcity, controllability, and legibility, while possessing the “unique attributes of virtual network property.”
According to the court
“The contract at issue in the case does not violate our country’s laws and regulations, nor our country’s current political and regulatory guidelines to avoid economic and financial risk, and should be protected by law.”
NFTs are the creator’s artistic expression and have the value of related intellectual property rights, the court added, while also being digital assets created on the blockchain.
“Therefore, digital NFT collections belong to the category of virtual goods […] “Different from tangible or intangible objects in general sales contracts,” he said. “NFT collections, a new type of online virtual property, should be protected by law as the subject of two-party transactions.”
However, the court noted that the legal characteristics of NFT collections are currently not clearly defined by law.
That being said, transactions in such cases are tantamount to selling digital goods online and as such constitute e-commerce activities governed by China’s e-commerce law, the court argued.
Society against Wang
The statement said the defendant in this case is a Hangzhou-based digital company that operates an e-commerce platform specializing in the sale of digital artworks. The complainant was the user of the platform, known under the pseudonym Wang.
The origin of the lawsuit is the platform’s reversal of its purchase of a collection of NFTs — which Wang says happened without his consent.
In February, the company announced that a “blind box” of NFTs would be sold in limited numbers, also saying that a cell phone number “real name authentication compatible” would be required with purchase, while orders would be void without real name authentication, false personal ones Information etc. would not be processed and the purchase would be refunded.
Wang said he bought a box for 999 yen (US$143) after providing his cellphone number and personal information. However, the company never delivered the purchase and refunded him 10 days later. Wang therefore demanded performance of the contract or payment of 99,999 yen (US$14,325) in compensation.
The company, meanwhile, claimed that the cell phone number and ID number provided by Wang when placing the order were inaccurate, and therefore issued a refund. In addition, according to the company, the contract had not yet come into existence at that time and even if it had, it would have been terminated in accordance with the contract due to the incorrect information provided by the buyer. Finally, it was impossible to send the box to Wang after the trial because it had already been sold.
According to the court, the statement made by the company with all the instructions given represents a formal invitation to interested parties to submit an offer. When Wang “successfully submitted” his order, it constituted a binding contractual agreement between the two parties.
However, the announcement made it clear that the platform has the right to terminate any contract in case of inaccurate information. Judging from the order details provided by Wang, “the fourth digit of the mobile phone number and the sixth digit of the ID card he filled out did not meet these requirements,” the court said. These items along with the refund sent to Wang gave the company the right to cancel the contract.
There is therefore no legal basis for the application of the contract. In addition, since there was no breach of contract, Wang’s alternative claim for damages of 99,999 yen “had no relevant factual and legal basis,” and his claim was dismissed.
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